Shifting the Dial: 5 year productivity review

Inquiry report

This report was sent to Government on 3 August 2017, then tabled in Parliament and publicly released on 24 October 2017.

This is the first document of its kind for the Productivity Commission — a look out across the landscape of factors and influences that may affect Australia's economic performance over the medium term, in order to offer advice on where our priorities should lie if we are to enhance national welfare.

Supporting Paper 16: Local Government

Achieving prosperity needs to focus on a new policy model

Mediocrity beckons if we let it

In the future, we cannot rely on high commodity prices or, given an ageing Australia, labour participation rates, to drive national income.

We might try to invest more to add to growth, but capital must be paid for, and investment to GDP rates are already at historically high levels, so there may not be much room to move.

That means that innovation and learning — doing things better — is the key for prosperity. Yet this has languished in Australia (and many other countries) for a decade.

A new agenda focused on individuals

Getting better outcomes involves new agendas involving the non market economy (mainly education and healthcare), the innovation system, using data, creating well-functioning cities, and re-building confidence in institutions. And no one wants clogged cities or arteries.

Better health care creates no losers

Australia is beset by a rising wave of complex chronic health conditions that will lead to many years of life spent in ill health, lower involvement in work and rising costs for the health care system. Suppliers rather than patients are the centre of the current system — an anachronism built on paternalism.

Prevention and management of these conditions by integrating care provided by GPs and other clinicians with care in hospitals is one antidote. Change can be orchestrated locally if the Australian, State and territory Governments move away from centralised control.

It is time to move to full adoption of patient-centred care, where the outcomes for, and experiences of, people are the key focus, but getting buy-in from clinicians is a critical part of this.

Reform of Australia’s health care system will not just be better for patients, but may save up to $140 billion over the next 20 years.

Australia’s education system is a mixed bag of excellence and mediocrity

Slipping school results and concerns about teaching quality raise questions about how Australians will adapt to the wave of changes in the economy over the coming decades.

The vocational education and training system is in disarray.

It will not be too long before universities will be the key vehicle for skill formation, yet their teaching function plays a subordinate role to their research role, and the outcomes for many graduates are poor.

Better teaching quality, re-building the VET sector, genuine options for acquiring new skills as people switch jobs and careers, using new technological models for educating people, and creating teaching-only universities are just a few of the many changes that need to be made.

Excising Utopia from Australia’s city policies

Australian cities are under pressure — rising population and congestion, poor infrastructure decisions, ad hoc and anticompetitive planning and zoning, and an unsustainable funding basis for roads. Stamp duties are bad taxes, a bonanza in times of rising housing prices, but unfair and inefficient.

Road funds that respond to where people want roads is one step to change, as is a switch to taxes on unimproved land value. There are good models of zoning and planning that could readily be adopted, and infrastructure decisions could be enhanced by taking out the ‘Utopia’ factor in their preparation.

Cooperative reform is still possible

While Australians’ trust in governments and their institutions is low and fragile, there are practical things that can be done to make governments work better.

A key will be that the Council of Australian Governments chooses to restore its role as a vehicle for economic and social reform.

The scope for the vital big reforms will require commitment to a joint reform agenda by all jurisdictions. This should be negotiated in 2018, collecting all ideas into a cohesive whole.

Prosecute the usual suspects too

Of course, market-based reforms are evident and available — to address the persistent failure of Australia’s energy market, redundant regulations, and flaws in workplace relations — but we know this already.

General

From 2003-04 to 2015-16, the gains to market sector GDP from ‘doing things better’ have been nearly zero (p. 33)

The ‘non-market’ sector (including health care and social services, education and training, and public administration and safety) accounts for 27% of employment in Australia (p. 192)

Health

More than 10 million Australians have three or more long-term conditions (SP4, p. 10)

Years of life spent in ill-health are nearly 11 years — highest in the OECD (p. 45)

4.9 million adults (nearly 30% of the adult population) are obese (p. 45)

11.7 million people have no or low exercise levels (2 in 3 adults) ( p. 45)

75% of acute bronchitis is treated with antibiotics. The appropriate rate is close to zero (p. 61)

Unnecessary waiting in doctor’s rooms costs Australians around $1 billion annually in lost time (p. 64)

40% of people with a health-related qualification have inadequate health literacy (p. 65)

Education

The share of Australians with poorest maths skills has risen the most among OECD countries 2003-2015 (p. 31)

An Australian 15 year old in 2015 had a mathematical literacy equivalent to a 14 year old in 2000 (p. 89)

About 30% of year 7 to 10 teachers in information technology have no real qualification in that field (p. 90)

Nearly 40% of university students did not think that their courses developed work-related knowledge and skills (p. 104)

One in five university graduates were underemployed in 2016 compared with 9 per cent in 2008 (p. 103)

Outstanding HELP debt has risen from $12.4 billion in 2006 to nearly $50 billion in 2016 (p. 110)

Cities

40% of Australia’s GDP is produced in Sydney and Melbourne (p. 123)

In 2015, Melbourne grew by more people every five days than Hobart added in the entire year (p. 124)

The avoidable social costs of congestion in Australia’s 8 capital cities was nearly $19 billion in 2014-15, and expected to grow to more than $31 billion by 2030 (p. 127)

More efficient use of Australia’s road network would produce GDP gains of around $60 billion in net present value terms over the next two decades (p. 137)

Stamp duties add over $50,000 to the cost of a median-priced house in Sydney, penalising people and businesses that move and discouraging others who want to move. For every dollar raised in stamp duties, the cost to Australians in reduced investment and mobility is 70 cents (p. 149)